As of November last year, Agilent’s (A) Electronic Measurement business unit is now traded as a brand-new public company—Keysight Technologies (KEYS).
Keysight’s three main business segments are Aerospace/Defense; Communications; and Industrial, Computer, Semiconductor. Keysight currently invests more than 12% of its revenues in R&D, which has led to decades of “firsts” and “fastests,” including the world’s first iridium phosphide integrated circuit for oscilloscopes and the world’s first single-slot PXI two-channel modular Vector Network Analyzer.
Keysight’s operating margins are 33% higher than its peer average and comparable to the industry leader Danaher. However, return on invested capital (ROIC) of 31% is nearly 2.5 times its nearest competitor.
The total value of Keysight’s outstanding shares and debt, less cash on hand (its enterprise value, or “EV”) is 9.4 times its average annual free cash flows. With the gobs of cash it generates, it would take Keysight only nine years to buy itself and pay off its debt. We’re comfortable buying Keysight for up to 10 times EV/FCF, using a three-year average of free cash flows.
Buy up to $36 per share. We recommend you hold these shares with a 25% trailing stop.
Porter Stansberry, Porter Stansberry’s Investment Advisory, www.stansberryresearch.com, 888-261-2693, May 2015